When you’re just starting out with business accounting, your company’s accounts payable (AP) process might seem like a static workflow that doesn’t change much. But in fact, the opposite is true. Your AP department might start out simple, but as you grow, you’ll find that accounts payable process improvements are more important to make than you think.
1. Move to paperless invoicing
If you’re still accepting paper invoices from vendors, you might want to consider switching to an entirely paperless system. This eliminates the tedium of entering paper invoices manually in your accounting software, and makes it less likely that your books will be thrown off balance by mis-typed data. Of all the accounts payable process improvements you’ll make, this might be one of the best.
2. Run regular aging reports
Are you having trouble tracking vendor payments? You might need to keep closer watch on your AP aging reports. These rundowns offer a top-level overview of what payments are due to which vendors, and for how long those payments have been in limbo. Most companies run these reports every month, though you can run them more frequently if you need to keep closer track of pending payments.
3. Review purchase orders by hand
Keep close tabs on the accuracy of your purchase orders. Many companies wait to review purchase orders well after the invoice has arrived, but by that point, it’s too late. Stay on top of outgoing purchase orders to cut costs related to inaccurate orders or unexpected price changes.
4. Automate invoice matching
Aim to establish three-way matching across your vendor invoices, purchase orders, and receiving reports. Many business-class accounting platforms offer this type of verification, and as your company grows, it becomes one of the easiest ways to verify the accuracy of your orders and their associated payments.
5. Build a backup cash reserve
If you’ve struggled to make vendor payments on time, you might benefit from a setting up an emergency cash reserve. This is particularly true if your company experiences high volatility in cash flow from month to month. Set aside a few dollars every month into a dedicated business account, and avoid touching the funds unless absolutely necessary. Not only does this provide a financial cushion when times are tight, but it offers something else just as important: Peace of mind that you can cover your bills.
6. Set automated payment reminders
Most companies pay their bills on time, but sometimes, invoices get lost in the shuffle—particularly with new clients. Set up automated payment reminders for every client in your accounting software. This is the easiest way to keep tabs on upcoming payments—and to keep your company out of the red in your vendor’s accounts receivables report!
7. Budget expenses ahead of time
Don’t take a slapdash approach to budgeting! You should know exactly how much money is owed to each vendor every month, and where the money is coming from to pay it. It sounds simple, but you’d be surprised at how much money the average business owner wastes in late fees and interest that come from late payments. Get thorough with budgeting and make sure you aren’t paying more than you need to.
8. Centralize account details
Look for ways to centralize and store accounting data all in one place. This applies to the digital invoices you receive as well as other data from other sources, such as scanning paper invoices, receipts, purchase orders, and more. The right accounting software will be able to help you here. This helps you visualize everything that your company owes to your vendors, and it gives you a good place to store and reference data for later purposes. (Tax planning, customer relationship management, and so on.)
9. Prioritize vendor relationships
Above all, remember: Vendors are people too. Working on your personal relationships can go a long way in supporting your AP goals. For example, if you’re a small business owner struggling to make payments to a trusted vendor, you can speak with them and work out an extension plan. They may be willing to waive late fines or interest, depending on your situation. As this relationship grows, they may also be more willing to go the extra mile in other areas, such as expediting supplies when you encounter unexpected demand.
Streamline Your AP Process
Your AP processes might seem like just another administrative burden you have to worry about, but when you approach the process with the right tips, tools, and training, you can turn this burden into a point of competitive advantage. Look for opportunities to streamline your AP workflows across the board, focusing on reducing costs, automating data entry, and better managing your vendor relationships.
Learn more about how to use accounting technology to grow your business by downloading our free guide.